Final Rule on Voluntary Liquidations. The Board approved a final rule which, through some technical changes, aims to “reduc[e] administrative burdens on voluntarily liquidating federal credit unions (FCUs) and recognizes technical advances…” Specifically, the final rule will allow those FCUs who voluntarily liquidate to publish required notices to creditors using electronic media instead of only “newspapers of general circulation.” The rule also increases the asset-size thresholds that dictate the number of notices a liquidating credit union must publish under 12 C.F.R. 710.5(a)(1)-(3). Finally, this rule limits preliminary partial distributions to members to the amount the share account is covered by share insurance and allows credit unions the flexibility to make these distributions by wire or electronically.

Proposed Rule on Asset Securitization. The Board also approved the issue of a proposed rule which would allow credit unions to securitize their own loans “as an activity incidental to the business for which an FCU is chartered…” The proposed rule includes multiple requirements credit unions would have to meet to be eligible for such asset securitizations:

The FCU must have originated the loans;

The FCU must create a “special purpose vehicle” or “special purpose entity” to hold the assets that serve as the collateral backing the security. The special purpose vehicle/entity must be structured such that its assets cannot be reached by the FCU’s creditors in the case of bankruptcy;

The FCU must comply with all federal and state laws relating to securitizing transactions;

The FCU must establish independent risk management and controls related to its asset securitizations;

The FCU must audit its securitization transactions annually;

The FCU’s board must have a general understanding of the asset securitization activities and their relation to the credit union’s overall business plan and strategy;

The FCU’s senior management that oversees the asset securitization program must have expertise in these kinds of transactions and facilitate oversight of third-parties involved in the program;

The FCU’s board must approve the policy using particularized information and criteria;

The FCU must utilize effective internal controls to detect errors and ensure compliance with contractual obligations.

The proposal imposes a limit on carried residual interests and retained interests to 25 percent of the credit union's net worth. The Board also approved a proposed rule on Part 709 of NCUA’s Rules and Regulations, Safe Harbor. This directly relates to the asset securitization proposal and addresses the treatment of securitized assets that are transferred to NCUA in the case of the Board acting as liquidating agent or conservator of a FCU.

Proposed Rule on Appraisals. The Board also approved a proposed rule amending three of NCUA’s appraisal provisions. First, the proposal would make a “technical amendment” to 12 C.F.R. 701.31(a)(1) by changing the definition of the term “application.” The rule currently cross-references and quotes the definitions section of Regulation B. The proposal would amend the quotation to reflect the current Regulation B definition.

The proposed rule would also eliminate the requirement at 12 C.F.R. 701.31(c)(5) to give members a copy of an appraisal upon request for first lien loans secured by a dwelling. The reasoning is that this provision is now duplicative given Regulation B’s appraisal requirements. However, members may still request a copy of the appraisal for subordinate loans secured by real estate. Finally, the proposed rule would amend 12 C.F.R. 722.3(a)(5), which relates to appraiser independence, by expanding an exemption. Specifically, the amendment would allow credit unions to refinance or modify existing loans without obtaining a new appraisal, “if there is no advancement of new monies or if there is adequate collateral protection, even with the advancement of new monies.”

Overall, the final and proposed rules are positive for credit unions as the changes either reduce regulatory burden or provide credit unions with additional flexibility in managing their assets. In addition to more detailed blogs, NAFCU’s Regulatory Affairs team will also issue Regulatory Alerts and a Final Regulation on these issues for NAFCU members which will provide particular details on these items.

Still Works for Treats. While we’re sharing positive news, my husband and I discovered this weekend that Lemmy does not like balloons when we used him to help announce some news of our own! We are expecting a baby boy in October, and while Lemmy does appear concerned about this new development, it’s really just the balloons. He was heavily rewarded with his favorite treats for his patience and modeling skills!

January 22, 2014

Last week, NCUA’s Office of General Counsel released its 2013 Regulatory Review report, concluding its annual review of one-third of NCUA’s rules and regulations, which this year included CUSOs, appraisals, member business lending and the Central Liquidity Facility. The report confirms that NCUA will be addressing a number of issues that NAFCU continues to fight for to ease regulatory burden on credit unions. Particularly, the Office of General Counsel recommended that the NCUA Board consider eliminating or amending several of the regulations raised in NAFCU’s “Dirty Dozen.”

For those of you who haven’t had a chance to see it, NAFCU prepared a list of twelve regulations- the “dirty dozen”- that regulators need to eliminate or amend because they are unnecessary, outdated, or overly burdensome on credit unions. This Regulatory Review report affirms that NCUA is considering a number of recommendations included on the "dirty dozen" list as it reviews possible changes in rules on incidental powers, member business lending and appraisals.

The first of NAFCU’s “Dirty Dozen” is a call to expand credit union investment authority to include permissible investments in derivatives, securitization and mortgage servicing rights. The review notes that the NCUA Board may look into expanding credit unions’ incidental powers in allowing them to securitize their own loans. The agency is also expected to issue a rule on derivatives at the board meeting on Jan. 23.

The report mentions possible updates to the agency’s MBL rule, a change NAFCU pushed for as the fifth of its “Dirty Dozen.” These proposed updates would “reflect the current business climate” and address issues such as calculating market value in construction-related business loans and valuation-related issues. The report also raised the prospect of changes to the MBL rule’s personal guarantee requirement and its two-year direct experience requirement.

Addressing the final recommendation of the “Dirty Dozen,” the report recommends that the Board amend Section 722 to eliminate redundant NCUA requirements on credit unions to provide copies of appraisals upon request.

Finally, the report acknowledges that the Dodd-Frank Act transferred the Fair Credit Reporting regulation to the CFPB and advises that Section 717 should be transferred to the CFPB. It also gives hope that NCUA may tackle other issues including modernizing advertising rules, and rules on notification of credit unions’ insurance status.

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NAFCU's 2014 Technology and Security Conference. NAFCU’s 2014 Technology and Security Conference, which will be held February 11-13 in Las Vegas, is a great place to discover the latest credit union security and technology trends. Conference topics include fraud trends, core processing issues, big data and credit union crisis management. Check out more information about the conference and register here.

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BSA Blast – The January 2014 edition of NAFCU’s BSA Blast is now available (a NAFCU member login is needed). This issue is all about enforcement – from FinCEN’s enhanced focus on holding financial institutions responsible for Bank Secrecy Act (BSA) violations and its enforcement action against JP Morgan Chase in connection with the Madoff scandal to recent OFAC enforcement actions against three banks. In addition the issue contains a new BSA quiz for use in staff training.

In keeping with the season of giving, the NCUA board voted 3-0 last Thursday to approve its final rule on charitable donation accounts (“CDA”), which is set to take effect upon its publication in the Federal Register.

This final rule establishes new ways in which credit unions may use their preapproved investment powers to support charitable donations and contributions to the community.

The rule defines CDA as a hybrid charitable investment vehicle that facilitates the charitable activities of federal credit unions by allowing for investments with a higher expected return, within the safe and sound parameters the rule establishes.

As in the proposed rule, the final rule requires federal credit unions to ensure that:

A minimum of 51 percent of the total return from such an account must be distributed to one or more 501(c)(3) charities.

Distributions must be made to qualified charities no less frequently than every five years.

Assets in a charitable donation account must be held in segregated custodial accounts or special purpose entities regulated by the Office of the Comptroller of the Currency, the U.S. Securities and Exchange Commission or other federal or state financial regulatory agency.

NCUA, however, has advised that a credit union may make distributions at any time. So, if the credit union is a “victim of success,” and is running the risk of piercing the 5% ceiling, it can make a distribution to the charity. Alternatively, the credit union can make a distribution back onto its books to hold as cash until it wants to put the distribution back into the CDA or make a distribution to charity.

This new rule expands the charitable opportunities for credit unions within their communities. NCUA’s Rules and Regulations have long recognized an FCU’s authority to make charitable contributions. 12 C.F.R. 721.3(b). Charitable contributions and donations are gifts you provide to assist others through contributions of staff, equipment, money, or other resources. Examples of charitable contributions include donations to community groups, nonprofit organizations, other credit unions or credit union affiliated causes, political donations, as well as donations to create charitable foundations. Charitable contributions, however, must still be necessary or requisite to enabling the credit union to effectively carry on its business.

Moral of this holiday story, the final rule gives credit unions an opportunity to be a little more jolly, and little less scrooge just in time for the holidays.

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Update on FHFA Plan to Increase Mortgage Fees. Last Friday, we blogged on the FHFA’s plan to increase Fannie Mae and Freddie Mac's guarantee fees, but later that night, Rep. Mel Watt (D., N.C.), the incoming director of the FHFA, the WSJ reported Watt's announcement that he intends to delay the implementation of an increase in mortgage fees until further evaluation is completed. This announcement came shortly after NAFCU’s President and CEO Dan Berger sent a letter to FHFA Acting Director Edward DeMarco expressing concerns about the negative impacts of these changes on credit unions and their members.

Winning! It looks like it really is the season to be jolly!

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Programming Note. NAFCU’s offices will be closed this Tuesday, Wednesday, and Thursday (December 24-December 26) for the holidays, but we will be back to blogging on Friday, December 27. To you and your family, happy holidays!

February 21, 2013

We've heard you! For the past couple of years, we've received the following feedback about NAFCU's Regulatory Compliance School (paraphrased, of course):

"School is great and provided a solid foundation for understanding the regulatory requirements credit unions face on a daily basis. BUT, the rules are changing so fast that it would be great to receive updates on what has just changed and what is changing next."

Remember: You do not need to be a NAFCU member credit union to attend NAFCU's conferences or webcasts. In fact, you don't even need to work at a credit union. Each School usually features a handful of consultants, vendors and other credit union "peeps" who support credit unions - in one way or another - on a daily basis.

July 16, 2012

On Friday, VISA and MasterCard announced a large settlement regarding credit card interchange fees. This setttlement culminates numerous years of lawsuits related to credit card interchange (which easily predates the Durbin Amendment and the debit card interchange debate). Numerous news outlets - including the Washington Post - have additional details on the background. The settlement still needs to be approved by merchants and their class representatives.

The settlement itself includes:

$6.05 billion in payments to merchants;

A 10 basis point reduction in interchange fees for 8 months (beginning sometime in 2013); and

Merchants will now be able to apply a "checkout fee" (surcharge) to transactions where consumers pay with a credit card.

The surcharge was previously prohibited by VISA and MasterCard rules. There are approximately 10 state laws that would still ban these credit card surcharges - although you can bet merchants will lobby to change those laws.

Additionally, if you missed it - you can still purchase and view the on-demand version of our July 11th webcast - Regulatory Compliance Update: New Developments and Hot Topics - which includes a 30-40 minute overview of the latest mortgage proposals from the CFPB. Note - the July 11th webcast is 2 full hours.

August 30, 2011

Yesterday, the NCUA Board met and announced a 2011 assessement of 25 basis points for the Corporate Stabilization Fund. NCUA will begin distributing the invoices with the assessment due by September 27.

The Board also announced a Management and Oversight Committee for the NCUA Guaranteed Notes. Finally, NCUA proposed a regulation with technical corrections to the Corporate Rule. Additional information can be found in NCUA's Board Action Bulletin.

Included in the information is information about how credit unions can help other credit unions as well as members and non-members in these types of situations. Specifically, the information indicates:

"Federal credit unions may also provide assistance to other credit unions, their members, and non-members in the affected areas, under certain conditions.

• Emergency financial services for non-members, including check cashing, access to ATM networks, or other services to meet short-term emergency needs of individuals in the areas affected by Hurricane Irene, can be provided under the authority to engage in charitable activities. Federal credit unions providing services on this charitable basis may not impose charges for services that exceed their direct costs.

• A federal credit union may provide services to other credit unions that it is authorized to perform for its own members or as part of its operations. This activity is part of a federal credit union’s incidental powers, so it may impose charges for these services."

January 31, 2011

First, NCUA released (via its NCUA Express service)a legal opinion letter that addresses the incidental power of "correspondent services."

You asked if a federal credit union (FCU) could provide the following correspondent services to other credit unions: share draft processing; check collection; ACH origination and receipt; wire transfers; coin and currency; and a line of credit. An FCU may offer lines of credit to other credit unions under its statutory lending authority in the FCU Act. An FCU may provide the other proposed services to credit unions pursuant to its incidental powers authority.

The letter is a nice overview of the "correspondent services" power, and it is a good reminder of the incidental powers regulation itself. Credit unions have a good deal of flexibility thanks to this rule, so it is worth a read if you haven't poked around in it in a while.

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NCUA also has a "virtual" town hall coming up on February 17th. Sign up here. Here's what you can expect:

October 15, 2010

Can a federal credit union place advertisements in their periodic statement? You bet they can. You can do it pursuant to your incidental power of "finder activity."

Finder activities are among the preapproved incidental powers of FCUs. 12 C.F.R. §721.3(f). Under NCUA’s incidental powers rule, an FCU may act as a finder and introduce or bring together its members with third party vendors so the two parties may negotiate and consummate transactions. Finder activities involve providing information to members about the products or services of third parties and include providing advertising space on an FCU’s web site, on ATM receipts, and in a newsletter, or including marketing materials in the mailing of account statements and newsletters.

Now, here's one issue that NCUA didn't address in this letter. Can you gain income through the use of your "finder activities" incidental power? You bet you can.

Keep in mind that NCUA raises a good point. You always want to protect your reputation when deciding whether to run advertisements in your newsletters or periodic statements.

October 05, 2010

Recently, NCUA issued Letter to Credit Union 10-0756 (September 22, 2010) to address the permissibility of offering free coin counting services. The letter addressed a question from a credit union that wanted to offer free coin sorting services to non-profits. NCUA said it could do so, as discussed in the letter. But don't get too excited. You have to read the letter closely. You may think it gives a green light to the offering of free coin counting services to all non-members. That is not the case.

First, it is very important to read the first paragraph of legal opinion letters. This is where NCUA limits the scope of its letter and lays out its findings. Here's the first paragraph from that letter.

You asked if it is permissible for your federal credit union (FCU) to offer free use of its coin sorter machine to non-member non-profit organizations as a marketing activity to promote membership in the FCU. Yes, as described below, the FCU may provide this free service to non-member non-profit organizations under its incidental powers authority. The FCU may also provide the service as a charitable activity to these organizations.

As you can see, NCUA's letter responded to a question from a credit union regarding non-members who are non-profits. Given that is the case, NCUA holds the following:

The credit union could offer the free coin sorting service to these non-profit non-members under its incidental powers authority of "marketing."

In addition, the credit union could offer free services to these members as a charitable activity, under NCUA's charitable donations rule.

Charitable donations. Federal credit unions have the ability to make charitable donations to certain entities under NCUA's charitable donations rule. The power is limited, but it does extend to non-profits that do business or are located in the credit union's business area. The charitable donations power is an interesting angle, but it won't necessarily open up your ability to offer free coin sorting services to most of the non-member consumers in your community.

Incidental powers. Here's the text regarding this part of NCUA's analysis.

NCUA’s incidental powers rule authorizes an FCU to engage in certain activities incidental to its business. Marketing activities designed to attract or retain members or encourage use of FCU products and services are among the activities preapproved as an incidental power. 12 C.F.R. §721.3(h). Your described purpose in offering the coin sorting service is consistent with a marketing activity. We note, however, the marketing program should not become a substitute for membership.

Now, even though this letter answers a question regarding non-profits, this paragraph does appear to give guidance that would apply to all non-members. The theory is this: Under your incidental power of marketing, you offer free coin sorting services to attract people to your branches, bags of change in hand. But note the last sentence from that paragraph of guidance. The marketing program should not become a substitute for membership. Unfortunately, NCUA does not discuss that issue any further.

When does a free service provided under the incidental power of marketing become a substitute for membership? An older legal opinion may help - NCUA Letter to Credit Union 02-0250.That letter addressed a question from a credit union that wanted to offer wire services to non-members. NCUA also mentioned the incidental power of marketing, but they gave a good deal more guidance, noting that the free services must be limited in scope and timing.

Our opinion is that, in the situation you have described of an FCU with a segment of its field of membership comprised of individuals with a special need for wire transfer services and a reluctance to join the FCU, providing wire transfers on a limited basis would be a permissible marketing activity. The purposes of providing limited wire transfers would be to promote membership and familiarize the users of the service with the benefits of membership. These purposes are directly consistent with the recognized purposes of marketing activities as stated in the regulation.

The limitations, which would be established by the FCU, should be narrowly drawn and clearly designed to ensure that the marketing program does not become a substitute for membership or result in providing wire transfers on an unlimited or continuous basis. Appropriate limitations might include placing restrictions on the number of times an individual uses the service, or on the period of time for which the individual uses the service, before joining the credit union. It should be clear that providing the service is used as an opportunity to promote and encourage membership. While it is not feasible or appropriate to delineate precise conditions in this letter, it should be clear from all of the circumstances, and from results over time, that the purpose of the program is to bring the individuals into the FCU’s membership.

Providing wire transfers on a limited basis as a marketing activity does not establish a continuing customer relationship between the FCU and the individual. It is distinguished, in that respect, from establishing a share account or providing a loan, and in our opinion it does not violate field of membership limitations and it does not conflict with the statutory restriction against providing wire transfers as an ongoing or continuous service to nonmembers.

So, according to the 2002 guidance, a free service to a non-member offered under the incidental power of marketing is not a substitute for membership if it is "narrowly drawn" with appropriate limits.

Conclusion: If your credit union wants to offer free coin counting services to non-members under the incidental powers of marketing, it would be wise to incorporate guidance from both the 2002 and 2010 letters referenced in this blog posting.

In a letter to this office, you stated that your FCU proposes to collect monthly rental payments on behalf of a housing cooperative and apply those payments to the cooperative’s accounts. Also under your proposal, your FCU would pay, from the cooperative’s accounts, certain monthly bills and reconcile the account ledger to the monthly statements.

NCUA defines operational programs as programs that an FCU establishes to deliver products and services to members that enhance member service and promote safe and sound operation. 12 C.F.R. §721.3(j). These programs include pre-authorized member transactions and loan collection services. Id. Accordingly, the services you have in mind on behalf of your member are permissible.

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